Nervous depositors in Cyprus have rushed to ATM machines to drain their accounts following a bailout agreement with international creditors that includes a levy on all the country's bank accounts.

An elderly woman leaves a bank as another man tries an ATM machine in Nicosia, Cyprus (AP) [PA]

Lines formed at many ATMs as people scrambled to pull their money out after word that the 10 billion euro (£8.6bn) rescue package Cyprus agreed with its euro area partners and the International Monetary Fund included one-off levy on deposit, an unprecedented step in the eurozone crisis.

The levy is expected to raise 5.8 billion euro.

European officials said people with less than 100,000 euro in their accounts will have to pay a one-time tax of 6.75%, those owning more money will lose 9.9%. Cypriot bank officials said that depositors can access all their money except the amount set by the levy.

But that hardly assuaged people who continued to withdraw cash from ATMs until the machines ran out, unsure what or how much would be taxed. Officials said that withdrawing funds on Saturday would not reduce anyone's levy.

The country's co-operative banks also shut their doors after depositors scurried in hopes of protecting their savings. Unlike commercial banks which remain closed on weekends, co-operative banks customarily open for business on Saturday.

"Politicians and senior bank bosses have covered each other's backs for years, now it's ordinary people who are paying the price and are being punished," said Christos Demetriades, 58, milling outside a shut Nicosia co-operative bank branch.

Cyprus' Finance Minister Michalis Sarris defended the decision to accept the levy, saying it was either that or a complete economic meltdown. "This was the least worst option," he told state broadcaster CyBC. "We battled to prevent the country from completely going bankrupt."

News of the levy came as a shock to most people following strict assurances from Cyprus' President Nicos Anastasiades that he would not accept a deal which required depositors to share in the losses. Government spokesman Christos Stylianides said Cypriot officials had resisted intense pressure to accept a deposit levy of a whopping 40%.

Bank bosses are meeting with Central Bank officials to figure out their next steps, while Mr Anastasiades, who returns to Cyprus Saturday evening has called for a meeting of party leaders to assess the unfolding situation.